EMU: EC Economic Sentiment

Fri Aug 28 04:00:00 CDT 2015

Consensus Actual Previous
Ec. Sentiment 103.8 104.2 104.0
Ind. Sentiment -3.0 -3.7 -2.9
Cons. Sentiment -6.8 -6.9 -7.1

The EU Commission's measure of economic sentiment proved slightly stronger than expected in August. At 104.2 the ESI was up 0.2 points versus its unrevised July outturn to register its highest level since the middle of 2011.

This month's modest improvement was led by increased optimism in the consumer sector (minus 6.9 after minus 7.1), services (10.2 after 8.9), retail (3.1 after 1.1) and construction (minus 22.7 after minus 23.8). However, confidence in industry (minus 3.7 after minus 2.9) sank to its weakest mark since February.

Regionally for the larger four member states developments were quite mixed. Hence a 0.9 point rise to 100.3 in the French ESI and a 1.7 point gain to 110.4 in the Spanish index contrasted with a 0.2 point fall to 105.8 in Germany and a 0.6 point drop to 105.8 in Italy. However, with France finally moving back above the 100 level, at least the entire group posted readings above the common 100 long-run average.

Even so, the inflation update was not so promising. In particular, manufacturers' factory gate price expectations fell from minus 0.1 to minus 2.4, their weakest reading in four months, while comparable service sector expectations were only unchanged (2.1) and so matched their lowest point since February. At the same time, households' inflation expectations dropped more than a point to 3.1, also a 4-month trough.

For the ECB there is good and bad news in today's data. The full impact of the recent wobbles in global equity markets will not show up until next month's report but the gently rising trend in the Eurozone ESI will be welcome, as will the much needed improvement in France. Nonetheless, inflation expectations were heading in the wrong direction even before the latest slide in energy costs and this does not bode well for attaining the central bank's near-2 percent HICP target. The bottom line is that monetary policy will stay loose at least through the majority of next year and may yet have to be loosened still further in the interim.

Conducted by the European Commission, the index is a broad measure of both business and consumer sentiment.

The survey offers key sentiment data across the European Union and the European Monetary Union. Data are available for each country and are aggregated for both the EMU and EU. It is conducted by the European Commission rather than Eurostat, the compiler of most other EMU data. The index is a broad measure of both business and consumer sentiment in the EU members. Because of its coverage of all the EU countries it is highly regarded in the financial markets as a good indicator of the mood of consumers and industry in each country. It is also normally a good indicator of quarterly GDP.

Confidence indicators are calculated for industry, services, construction, retail trade and consumers. In turn, they are combined into an overall composite number, the economic sentiment indicator (ESI). The data are seasonally adjusted and defined as the difference (in percentage points of total answers) between positive and negative answers. The survey also covers other areas of the economy that are not explicitly included in the ESI. In particular, responses to questions about the inflation outlook are used by the ECB as one means of measuring inflationary expectations.